Several notable global economic tremors in the last few months – including the continuation of the Greek crisis in the eurozone and jitters in the Chinese stock market – haven’t taken a serious a toll on optimism among CFOs around the world, according to the most recent Global CFO Signals by Deloitte.
However, in many of the nine country reports in this edition of the report, CFOs’ optimism seems increasingly tied to their own country’s or region’s situation.
Highlights from the report include:
In the wake of the election of a majority conservative government, UK CFOs are reporting higher risk appetites and more expansionary strategies.
Australia’s federal government policy is now viewed as neutral instead of starkly negative thanks to a budget that promises fiscal repair.
An undercurrent of uncertainty about the strength of the U.S. economy tempered optimism and expectations among North America’s CFOs.
From a CFO’s perspective, “some of the geopolitical issues that were alarming, in particular the eurozone situation, may be less alarming now,” notes Ira Kalish, chief global economist for Deloitte. And given that global companies are obviously influenced by what happens in their home countries, those factors may be weighing more heavily this quarter.
At the same time, this seeming lull in geopolitical crises may be an opportunity to develop a clearer “road map” for future growth, says Kalish. CFOs seem to be focusing more on their longer-term prospects. Instead of citing economic uncertainty as their biggest concern this quarter, UK finance chiefs pointed to the possibility of rising interest rates; Belgium’s CFOs are worried about the competitiveness of their companies; and North America’s CFOs are greatly concerned that equity markets are overvalued.
Still, those are not the only “triggers that could reignite uncertainty,” says Kalish, adding China, the price of oil, and another possible budget crisis in the U.S. to the list. So as CFOs look ahead, he adds, “vigilance continues to be a good idea.”
In North America, CFOs remain optimistic this quarter. But while 38 percent express rising optimism about their companies’ prospects, that figure is down sharply from last quarter’s 48 percent and is the lowest level in more than two years.
Moreover their growth expectations were down dramatically: revenue growth expectations, for example, fell to 3.1 percent from 5.4 percent last quarter and now sit at their historic survey low. Similarly, earnings growth expectations fell sharply to a survey-low 6.5 percent from last quarter’s 10.6 percent. CFOs see the outlook for the broader North American economy as quite good – only slightly below where it was last quarter and their assessments of Europe rebounded substantially.
Low interest rates and a weaker Australian dollar are fueling optimism among that country’s CFOs. In addition, the federal government’s policy-making has a neutral influence on optimism this quarter, whereas last quarter two-thirds of finance chiefs felt that the influence was negative.
In this environment, CFOs’ views on their own companies’ metrics for the coming year show a number of continuing positive signs, with 71 percent forecasting increased operating cash flows and 49 percent expecting increased capital expenditures. Still, the rate of fiscal repair is seen as too slow among CFOs, even though the majority (58 percent) believes the government’s budget could have a positive impact on the economy.
CFO sentiment remains mixed across much of Europe. In the UK, for example, optimism is apparent in CFOs’ rebounding risk appetite: up to 59 percent from a two-year low of 51 percent last quarter. Moreover, CFOs’ strategies have turned markedly more expansionary, and expectations for hiring and capital expenditure have risen close to their highest levels in five years.
The positive sentiment is shared among Belgium’s CFOs, whose outlook is bolstered by the fact that halfway through the year, 37 percent of them report their companies have performed better than what was initially budgeted. Netherland’s CFOs, on the other hand, report a slightly less optimistic outlook, but their perception of uncertainty took a positive turn: 46 percent now rate it as above normal – compared with 89 percent two years ago.
Meanwhile, Switzerland’s finance chiefs remain gloomy as they continue to adapt to the removal of the currency floor in January. And only 17 percent of Austria’s CFOs are feeling confident about economic development in their own country, while just 14 percent report increased optimism toward their companies’ prospects.